Sinopec is China’s leading refining and chemical company, and its original role after 2000 was to support China’s emergence as the manufacturing capital of the world. Today, however, China’s exports are falling rapidly as the West’s economy flatlines with the ageing of the BabyBoomers.
One thing that will not change is Sinopec’s policy of continued investment, without looking for commercial returns. As the chart shows, since 1998:
- Chemicals capex has totalled Rmb 204bn, whilst EBIT has been just Rmb 112bn
- Refining capex has been Rmb 234bn, with a loss of Rmb 72bn at EBIT level
- Overall, capex in these two areas has been Rmb 438bn, with total EBIT just Rmb 40bn
The Profile also highlights how this capex is expected to continue in 2013, enabling Sinopec to reach global No 2 in ethylene production by 2015. Chemicals capex is expected to be Rmb 26bn ($4.2bn), with a further Rmb 34bn being spent in refining.
Thus as the world transitions to the New Normal, Sinopec’s new role will be to support the growth of China’s domestic demand. This will have considerable implications for the global petchem industry:
- Sinopec will continue to maximise production; as the chart shows, its average Operating Rates have been consistently over 100% since 2000
- This will dramatically reduce the need for imports, particularly from Asia and NAFTA, as domestic GDP growth will also be well below earlier levels
The blog highlighted this potential in the first edition of the Study in 2011. Now it is becoming reality But unfortunately very few companies have yet begun to appreciate the dramatic changes that will result. They now need to catch up very quickly.
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